As Money Props Up Art World, Prospects Are Mixed

A Sotheby's sale of "Homme au Fanion" by Picasso in New York in 2010. Some works continue to fetch record prices, but generally in private sales rather than open auctions, specialists say.Credit
Tom Starkweather/Bloomberg News

Whether he intended it or not, or even realizes it, Ben S. Bernanke has become a patron of the arts.

Much of the several trillion dollars printed at the behest of the U.S. Federal Reserve chairman — and trillions more in other currencies printed by his peers at central banks around the world — has made its way into stock and bond markets over the past few years. But some of that money has also helped to prop up the art market, specialists in the field say, as demand for certain categories reported by auction houses demonstrates: sales of Old Masters, postwar and contemporary, Impressionist, modern and Chinese works at Christie’s and Sotheby’s rose 5.9 percent last year, to $6.64 billion.

“What’s driving the art market globally is that certain people have a lot of liquidity and are looking for places to put it,” said Suzanne Gyorgy, head of Citi Art Advisory, a service of Citigroup’s private bank. “For many people art is an interesting alternative investment. It’s seen as a hedge against inflation and a safe haven in the high end of the market.”

The Art & Finance Report 2013, a collaboration between the accounting firm Deloitte and ArtTactic, a market research company, similarly highlighted inflation fears and government measures to stimulate economic growth to partially explain rising investment in art, including at auction. It estimated that assets in art investment funds rose 69 percent last year, to $1.62 billion worldwide.

Whether the trend persists and yields profits for the new wave of investors is hard to predict. The combination of lingering economic uncertainty and freshly printed money has created a mixed outlook for art, specialists say.

While new buyers are entering the market, particularly Americans, others who had helped support it, mainly from emerging economies, are pulling back. The result is a bifurcated market, with some categories, notably contemporary art and Impressionism, experiencing feverish demand and fetching fantastic sums, and activity elsewhere subdued.

“Buyers need to go in realizing that they’re unlikely to get things at auction within the estimate” in the hotter niches, Ms. Gyorgy cautioned. “People need to be prepared for that; some say they never had a chance to put the paddle up. It’s not true for every sector or for Grade B and C works. That’s not a bad sign. It’s just that there are many markets that make up the art market.”

Whatever support certain segments may be receiving from injections of hot money, the broader market seems to be cooling off. The European Fine Art Foundation estimates that global sales of art and antiques fell 7 percent last year, to €43 billion, or $56 billion.

Prices were down, too. The Mei Moses World All Art Index, which is based on prices of works sold multiple times at auction, though not all in the same year, was down 3.3 percent in 2012, a performance that “puts into question the continued recovery of the worldwide auction art market,” according to a report by Beautiful Asset Advisors, the company that compiles the index.

Even with the decline, the index produced a compound annual return of 7.4 percent in the 10 years through 2012. But the firm also points out that the index is off to a weak start this year, falling an additional 5.8 percent in the first quarter.

Jeff Rabin, a principal and co-founder of Artvest Partners, a New York advisory service, warns that the market this year could shape up to be more like the past months than the past few years.

He contends that the market hit a sweet spot and has begun to veer away from it.

“We anticipate a further drop in 2013,” he said. “We’ve seen an incredible run in art sales in the last decade, partly due to China and Russia joining the world economy and uncertainty in the financial markets, which led people to seek stores of value like gold and art. I think that has run its course.”

Any trend reversal could be obscured by the dazzling sums that a small fraction of items command. Mr. Rabin observes, however, that these are becoming fewer and farther between in the exhausted market, and he expects fewer, still, to turn up at auction.

“We’ll continue to see record prices on certain works, but a lot of them will trade privately,” he said. “The auction market is finding it more difficult to get great property, so we could see a drop in how much trades at auction versus privately.”

For experienced and novice collectors who do not want to go toe to toe and paddle to paddle with deep-pocketed investors when premium works come up for sale, the lackluster market conditions could prove beneficial.

“There will be tremendous opportunities to own works of certain periods and artists in coming years,” Mr. Rabin said. “People who are just looking for an investment are not seeing this. There are lots of artists out there that haven’t seen this explosive price appreciation.”

If investors in art funds fare poorly, Thea Westreich Wagner, founder of Thea Westreich Art Advisory Services in New York, would shed no tears. She expresses disdain for the funds and suggests that her opinion is widely shared.

“I don’t think someone can work effectively in the art market by buying and selling,” she said. Borrowing a derisive term associated with the last real estate bubble, she added: “I know people who won’t sell good works — works in high demand — to buyers known to be flippers. If you want to play the art market the way you play the money market, go ahead. It does not appeal to me.”

But for those who are “trying to spend money effectively to build an intellectually and visually exciting collection,” Ms. Westreich Wagner said, “there are lots of ways to participate in the international art world, and all of it doesn’t cost $1 million.”

There is also more help available to them. As the market has expanded, so has the collecting infrastructure, including consultants who can help collectors make better decisions — “there are more advisers than I can count; there’s more of everything and everybody in the art world,” Ms. Westreich Wagner said — along with experts on appraisal, conservation, insurance, shipping, lighting, storage and tax issues.

The avenues for buying art are growing, too. Online galleries and auctions have increased greatly in popularity in recent years, though Mr. Rabin advised caution.

The online market offers “access to all sorts of works, and you can do research,” he said, “but a lot of people take what they see as fact, when you can’t really tell a lot about a work online. You need ‘wall power,’ you need to stand in front of a work of art. Also, there are issues of authenticity. You really want to know whom you’re dealing with, how they vet works.”

He noted that the big auction houses, Christie’s and Sotheby’s, guarantee the information in their catalogs, making buyers whole if inaccuracies are discovered within five years that result in a work’s value being diminished. That standard is not widespread online, he said, so “we won’t see tremendous growth until services get that right.”

When it comes to choosing what to buy, the time-tested rules still apply. Collectors are encouraged to acquire what they like, but only after acquiring as much knowledge as possible. Someone who wants to collect, not invest, is still putting up money, advisers say, and it will be better spent if they invest time to get to know the market first.

“It’s not a place for the uninitiated,” Ms. Westreich Wagner said. “Knowledge trumps all. When you’re buying a work of art, you need all sorts of information, just like when buying a house or stock. If you’re a good, informed collector, you know when the price is too much because you’ve been following the trajectory of the artist’s career.”

Accumulating knowledge is a matter of “looking, then reading, then talking,” she said. “Engage with people in the community, then make your own evaluation.”

Ms. Gyorgy encourages neophytes to go to art fairs or other venues where they can find “a lot of art in one place.” She also advises collectors to judge works in the context of others by the artist from the same period and to check condition firsthand to see what repairs have been made rather than rely on a gallery’s or auction house’s condition report.

“It’s a buyer-beware market,” she said. “If you don’t do research, you could make a costly mistake. Don’t take things at face value.”

Collectors also should buy the best work available within a given budget, like a good drawing or print instead of a so-so painting by the same artist, Ms. Gyorgy said. Otherwise, if the flow of money slows — if Mr. Bernanke’s support should wane, for instance — there is a risk of being “stuck with something of lesser quality,” she warned. “But if you’ve bought a great work, you still have something beautiful.”